Jersey has long enjoyed a close and prosperous relationship with the Middle East; for example, the first Jersey-based Sharia compliant fund was established over 20 years ago. The longevity of the ties between Jersey and governments, businesses, and high net worth (HNW) individuals in the Middle East is a testament to the common benefit for all parties in Jersey’s prominent position as an established, well-regulated international finance centre (IFC).
This close financial relationship is supplemented by strong political links between Jersey and the Middle East. Members of the Jersey Government make regular visits to liaise with their Middle Eastern counterparts. Jersey has signed full double taxation agreements with the UAE and Qatar and, in July 2020, Jersey and the UAE jointly announced their intention to negotiate and sign a Bilateral Investment Treaty (BIT). When signed, the Jersey-UAE BIT will be Jersey’s first such BIT, which is indicative of the importance of the relationship between Jersey and the Gulf region.
A particular strength of Jersey over other IFCs is that Jersey’s laws are flexible enough to ensure compatibility with the tenets of Sharia law and, unlike other jurisdictions, Jersey’s laws have not required amendment in order to accommodate Sharia-compliant financial products.
A good example of this can be seen in the use of Jersey trusts and foundations as a vehicle for private wealth management. For example, the forced heirship inheritance principles of Sharia law (whereby the deceased’s assets can only be transferred to his/her heirs in set proportions) can be accommodated in Jersey private wealth structures. Moreover, such structures can accommodate a gradual transfer of wealth. Such structures have been popular with Middle Eastern clients for a number of years and such popularity appears set to continue.
One common concern that many HNW Middle Eastern clients have with utilising private wealth structures is that it usually requires transferring family wealth to third parties; as such, ensuring oversight of these private wealth structures can be of paramount importance. Accordingly, the ability for clients to reserve powers in a trust or foundation is often of particular interest to Middle Eastern clients. By way of example, Article 9A of the Trusts (Jersey) Law 1984 provides that a settlor may reserve a number of powers without affecting the validity of a trust including, for instance, the power to appoint or remove trustees. Such reserved powers can be used to ensure the settlor maintains a degree of oversight and control over the trust assets.
If reserving powers does not sufficiently ameliorate a prospective settlor’s concerns regarding oversight, there is also the option of establishing a private trust company (PTC) to act as the trustee. Such PTCs are becoming increasingly popular amongst HNW Middle Eastern clients who wish to create a private wealth structure but who do not wish to transfer family assets to a third party offshore professional trustee company. A settlor will typically be highly involved in the PTC, including being a director of the PTC or a member of the PTC’s investment committee, but will not usually own shares in the PTC. This is to avoid potential issues arising upon death (such as probate and succession issues); PTCs are generally held in orphan structures, such as a Jersey purpose trust, to avoid the PTC’s shares being attributable to any particular individual. Jersey is an ideal jurisdiction in which to set up a PTC as Jersey PTCs are exempt from the typical regulatory requirements for trust company business and are subject only to light-touch regulation.
Other advantages of utilising Jersey trusts or foundations for wealth management purposes include that Jersey, as a jurisdiction, is financially and politically stable. This may ensure peace of mind for those from less stable jurisdictions. In addition, due to the fact that Jersey has many years of working with Middle Eastern clients, there is a wealth of experience to choose from within the Island. It is simple to find practitioners with deep knowledge of the topic who understand the customs and more nuanced points. There is also the benefit of increased confidentiality which can be desirable for HNW clients. Moreover, the documents used to create these structures can be drafted to provide that the assets of the trust or foundation cannot be invested in financial products or investments which are haram, for example interest-bearing bonds. It is commonplace in such structures to ensure that any investment committee or investment manager has sufficient expertise (often provided by persons in Jersey) to ensure that monies are only invested into Sharia-complaint investments; this sometimes involves a Sharia scholar being consulted to ensure compliance with the requirements of Sharia law.
Jersey trusts and foundations are also highly suitable for philanthropic endeavours. Whilst in certain jurisdictions, non-charitable purpose trusts are not valid (or otherwise highly restricted), Article 12 of the Trusts Law ensures that a trust shall not be invalid for having non-charitable purposes provided that an enforcer is appointed to enforce these purposes. This allows a Jersey purpose trust to have both non-charitable purposes and charitable purposes, which could include provision for Zakat payments (which are the payments of a proportion of an individual’s wealth to charitable purposes).
In some jurisdictions, rules requiring a trust to have ascertainable individual beneficiaries and/or preventing perpetual trusts may preclude Middle Eastern clients from establishing waqfs. Waqfs, being the donation in perpetuity of a fixed asset (such as a building, land or cash) with the intention that the revenue or benefit of the fixed asset serves specific classes of beneficiaries, can be accommodated within Jersey law by means of a charitable trust (if the purposes are to be wholly charitable) or, alternatively, a non-charitable purpose trust. Article 15 of the Trusts Law provides that “[u]nless its terms provide otherwise, a trust may continue in existence for an unlimited period”. This ensures that no issues arise in respect of the fixed asset being donated in perpetuity.
Jersey also has the benefit of a modern charities regime pursuant to the Charities (Jersey) Law 2014. The Charities Law established a charity commission, a central charity register and provides a clear “charity test” to determine what is and what is not a charitable activity. The charity register has a “general section”, intended for charities which solicit donations from the general public, and a “restricted section”, intended for privately funded charities which do not wish to disclose information publicly. In the latter case, the information available to the public on the register is highly restricted; for example, the name of the charity will not be displayed. The existence of the restricted section may be of particular interest to HNW Middle Eastern families who wish to keep their philanthropic endeavours private. Registration is not mandatory although there are tax benefits in doing so, including exemptions from income tax and GST, entitlement to recover income tax on certain donations, and reduced rates of stamp duty and land transaction tax. Due to these myriad advantages, Jersey is quickly becoming a preferred IFC for Middle Eastern clients to establish philanthropic structures, often as part of a wider private wealth structure.
Jersey also has strong and long lasting ties with the Middle East in relation to Sharia-compliant financial products, such as Sukuk. For example, the notable Caravan 1 Limited structure, upon which Voisin advised, which was the first dual special purpose vehicle (SPV) structure-based Sukuk, utilised a Jersey SPV. Sukuk structures, which typically involve a form of asset-based sale and lease structure whereby investors receive rental payments (linked to the performance of the underlying asset) rather than interest, commonly use Jersey to establish the SPV which holds legal title to the underlying assets. Perhaps the most common form of SPV is a corporate SPV. Corporate SPVs constituted for use in a Sharia-compliant transaction simply need to comply with the same statutory rules regarding corporate governance as a normal Jersey company.
The Jersey Financial Services Commission (JFSC) is responsible for the regulation of Sukuk and all other Islamic finance products and, due to the long-standing commercial links with the Middle East, is highly familiar with such products. The JFSC treats Sukuk as a form of securities and, pursuant to the Control of Borrowing (Jersey) Order 1958, requires that the issuer obtain regulatory consent before issuing the Sukuk. This is typically a straightforward process and reflects the fact that the JFSC does not impose any additional regulatory requirements on a Sharia-compliant fund over and above those consents which would be required by a non-Sharia fund seeking to issue conventional securities.
This parity of treatment is demonstrative of Jersey’s determination to ensure that it remains a leading IFC for Sharia-compliant finance. In this vein, guidance has recently been issued by Revenue Jersey (the Island’s tax authority) which confirms that typical Sharia-compliant funding structures and, in particular, Tawwarruq/Murabaha structures are not subject to income tax in Jersey. Whilst Murabaha contracts are often utilised to purchase real property (with property in London having been historically popular amongst HNW Middle Eastern clients) the Statement of Practice confirms that “the purchase of an investment asset other than a real estate asset will not prejudice the application of [the]… Statement of Practice”. From a legal perspective, such Murabaha contracts are subject to and governed by the usual rules of interpretation of Jersey law. In addition to Sukuk and Murabaha, Jersey law is also flexible enough to accommodate other commonly used Sharia-compliant investment solutions, including Ijara, Mushakara, Mudaraba, Salam, Istisna and Qard hasan.
Jersey’s long-standing links with the Middle East appear set to continue into the future; as political and cultural ties deepen, the economic links between Jersey and governments, businesses, and HNW individuals across the Middle East appear likely to further strengthen, particularly given Jersey’s determination to remain a leading IFC for Islamic finance and Islamic private wealth management.
Advocate Kate Anderson
Kate is an experienced financial services, banking and finance professional. As the Partner in charge of the Banking and Funds practices of Voisin, she advises on the establishment of investment vehicles ranging from single investor/corporate group structures to retail collective investment funds. Kate’s regulatory and funds practice specialises in the legal, regulatory and corporate governance aspects of investment vehicles, collective investment funds, holding companies and managers. Kate and her team aim to provide practical, honest solutions to what are often complex legal and regulatory issues. They aim to take the worry out of setting up these structures. Once established Kate and her team aim to provide a seamless transition to the maintenance of the structure providing ongoing regulatory advice if required, together with advice on the financing of the structure practical, pragmatic advice on any required restructuring as and when required. Kate’s banking and finance practice focusses on advising on large corporate borrowing transactions, predominantly relating to commercial real estate groups borrowing from conventional lenders and debt funds. The debt is regularly £100m +, often involves 30+ corporate entities and multiple lenders providing senior and mezzanine debt at various points across the group. Whilst Kate deals with a wide variety of investment vehicles from plain property investments to CLO’s, she has a particular interest in property holding structures, impact investment and Sharia’h compliant investment vehicles.